Business textbook writers might do well to consider VMware's last year, as the company announced revenue and earnings that exceeded expectations, plus strong growth for new products, just a year after making a major change of strategy.
That change came with the company's FY 2015 results, when the company announced it was firing 800 people, abandoning a plan to built its own cloud and warned that its flagship vSphere product was in long-term decline. Through the year the company also turned over plenty of its C-suite.
Fast forward a year and the company says its new cloud strategy is winning friends, and revenue, while rumours of vSphere's demise were probably premature.
First to the numbers: Q4 saw US$2.03 billion come through the door, up nine points year on year. Net income for the quarter hit $441m Revenue was $40m ahead of expectations and earnings per share of $1.43 beat estimates by three cents.
For the full financial year the company cracked the US$7bn barrier with revenue of $7.09 billion, an increase of eight per cent on 2015's figure. Net income was $1.19bn.
Free cash flow for the year was $2.23, so there's cash everywhere down VMware way. No wonder the company has decided to buy back $1.2bn of stock.
How did VMware do it? NSX arguably led the way, doubling its customer count and hitting a $1bn/year run rate. VMware CEO Pat Gelsinger said NSX is now mainstream and a “land and expand” proposition as customers buy it for one thing and then find themselves using it more widely. It doesn't hurt that NSX is a part of VMware's new Cloud Foundation bundle, which includes vSphere and VSAN. Or that the internet of things and network function virtualisation look like markets that can use some virtual networks and microsegmentation. VMware therefore thinks NSX has the chance to lead it deep into industries and businesses it may not address today.
VSAN and the VX Rail hyperconvergence-ware product, was declared to be a $300m-a-year business with 7,000 customers and VMware proclaimed itself the leader in hyperconverged software.
“Compute”, VMware's term for server virtualisation, beat the company's estimates, helped by vCloud Air Network members enthusiasm for vSphere—powered clouds.
End user computing and management software made modest gains, but gains nonetheless.
Being part of Dell didn't hurt either: Gelsinger said VMware's new owner has helped to grow sales, while “synergies exceeded expectations in Q4.” VMware's previously said being owned by Dell should add $1bn to its revenue number over time.
We didn't hear much about VMware's container efforts or cloud-native applications. A kind interpretation of their omission from the earnings announcement would suggest that the company's major products in the field emerged during Q4 2016, so are yet to produce revenue or momentum worthy of mention. VMware knows it has to excite currently-underwhelmed developers. The Register expects we'll hear and see lots of such activity this year.
Overall, Gelsinger declared the quarter beautifully balanced, in terms of results by product, geography and any other measure you care to conjure. Customers like VMware's approach to hybrid cloud, he said, adding that there's lots of upside to come as VMware's deal with Amazon Web Services bears fruit and its Cross-Cloud architecture hits the market mid-year.
“This was a very good year for VMware demonstrated by strong revenue, earnings and cash flow growth,” added CFO Zane Rowe, who offered revenue guidance of $7.57bn for financial year 2018.
Rowe also reminded us that VMware's financial year is about to change to match Dell's, which ends in early February. January 2017 will therefore exist outside financial years 2016 and 2018. ®